Two more accounting firms censured by Canadian audit watchdog thus far in 2024

TORONTO, July 28, 2024 – After censuring seven accounting firms in 2023 — five of which were based in British Columbia — the Canadian Public Accountability Board has added two more Canadian auditors to the list in 2024. Kingston Ross Pasnak LLP of Alberta was sanctioned in June and Macias Gini & O’Connell LLP, which is based in Los Angeles and does not have offices in Canada, was sanctioned in April. One other accounting firm, Manning Elliott LLP, which is based in British Columbia, had its 2023 prohibitions modified in March of this year. 

While the accounting profession is regulated provincially, CPAB is responsible for overseeing the audits performed by registered public accounting firms, which includes inspections of audit engagements and sanctions against auditors that violate its rules. 

According to its enforcement action against Kingston Ross Pasnak, CPAB inspected three KRP audit files and identified four significant inspection findings in two files of the files inspected. While the results of the 2023 inspection were an improvement over previous inspections of the firm, the regulator’s concerns over audit quality “still have not been sufficiently addressed.” The firm is therefore prohibited from accepting audit engagements from new “moderate and high-risk” reporting issuers. 

In 2023, Canadian Accountant reported that, based on data provided by the US research firm Ideagen Audit Analytics, foreign firms were dominating the mid-tier audit market, as the top four accounting firms with the most in net new audit fees in 2022 were all foreign firms. Since then, three of the four firms have been censured by CPAB, beginning with Marcum LLP in February 2023, Macias Gini & O'Connell LLP in April 2024, and BF Borgers (which was banned by CPAB) in November 2023. 

According to its enforcement action against Macias Gini & O’Connell, CPAB inspected three audit files and identified significant inspection findings in all three files, which “indicated continued concerns over audit quality.” The action reports a lengthy list of violations of Canadian Auditing Standards and PCAOB rules. At the time of CPAB’s 2023 inspection, MGO audited fewer than 50 Canadian “reporting issuers” (i.e., public companies), and approximately 20 of such companies in the US. 

The American firms were particularly active in the Canadian cannabis market. On its Facebook page in 2018, MGO declared that it “proud to have provided professional services to a growing number of cannabis businesses that have successfully gone public in Canada.” As an example of the turbulence in the market, cannabis company Bellrock Brands announced that it had changed auditors from Manning Elliott LLP, which has been censured, to Macias Gini & O'Connell LLP, also censured, due to audit delays. 

CPAB has taken steps to expand the information it discloses publicly. The new transparency rules not only name the firms in enforcement actions but also detail audit deficiencies. An update provided by CPAB in March 2024 stated that one of the most important rule changes — individual public inspection reports for each audit firm — will depend on changes to the regulator’s governing legislation, the Canadian Public Accountability Board Act (Ontario), 2006. 

Colin Ellis is a contributing editor to Canadian Accountant.